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His Excellency the Governor General recommends to the House of
Commons the appropriation of public revenue under the circumstances,
in the manner and for the purposes set out in a measure entitled ``An Act
to amend the Income Tax Act, the Income Tax Application Rules, the
Bankruptcy and Insolvency Act, the Canada Pension Plan, the
Children's Special Allowances Act, the Companies' Creditors
Arrangement Act, the Cultural Property Export and Import Act, the
Customs Act, the Customs Tariff, the Employment Insurance Act, the
Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the
Income Tax Conventions Interpretation Act, the Old Age Security Act,
the Tax Court of Canada Act, the Tax Rebate Discounting Act, the
Unemployment Insurance Act, the Western Grain Transition Payments
Act and certain Acts related to the Income Tax Act''.
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These amendments implement the draft income tax measures
announced in the February 1997 budget and the technical amendments
to the Income Tax Act and related statutes originally included in Bill
C-69. Also included is a provision that increases the cash floor of the
Canada Health and Social Transfer under the Federal-Provincial Fiscal
Arrangements Act from $11 billion to $12.5 billion and makes the cash
floor operative beginning in the 1997-98 fiscal year. The income tax
amendments of greater significance are summarized below.
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(1) Charitable Donations: introduces capital gains tax relief for
gifts of certain listed securities, increases the charitable donations limit
by recaptured depreciation that arises in respect of gifts of depreciable
property, and denies charitable donation treatment for loan-back
arrangements.
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(2) Registered Education Savings Plans (RESPs): increases the
annual RESP contribution limit from $2,000 to $4,000 per beneficiary,
allows growth on RESP contributions not to be forfeited in certain cases
where post-secondary education is not pursued by beneficiaries, and
provides a 20% penalty on any portion of such growth that is not
transferred on a tax-deductible basis to an RRSP.
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(3) Transfer Pricing: implements, in conformity with the revised
transfer pricing guidelines of the Organization for Economic
Co-operation and Development, a transfer pricing regime based
explicitly on the arm's length principle and introduces transfer pricing
documentation requirements and penalties for failure to make
reasonable efforts to determine arm's length transfer prices.
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(4) Film or Video Production Services Tax Credit: introduces a
new refundable 11% tax credit to provide economic development
assistance to film and video productions produced in Canada.
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(5) Loss Trading: restricts the transferability of losses between
affiliated persons.
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(6) Bankrupt Individuals: eliminates the double deduction of
personal tax credits in the year of bankruptcy.
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(7) Changes of Tax Status of Corporations: provides rules that
apply when a corporation becomes or ceases to be exempt from income
tax.
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(8) Disability Benefit Top-ups: ensures that there will be no change
in the income tax treatment to recipients of disability benefits where the
insurance company paying the benefits becomes insolvent and
employers take responsibility for continuing the current level of
benefits.
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(9) Adventures in the Nature of Trade: implements the measures
announced by the Minister of Finance on December 20, 1995 according
to which, for income tax purposes, inventory held as an adventure in the
nature of trade must be valued at its historical cost, rather than at the
lower of cost or fair market value, so that accrued losses on such
property will be recognized only on its disposition.
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The Explanatory Notes issued by the Minister of Finance provide a
detailed explanation of these income tax amendments.
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